Tesla Company’s Diversification Strategy

Introduction

Tesla, Inc. is one of the leading technology companies in the United States. The company headquartered in Palo Alto, California was founded in 2003 and started as Tesla motors where its primary focus was making electric cars (Somssich, 2017). Over the years it has existed, the high-tech company has diversified its interests to include energy storage through its lithium-ion battery and manufacturing of photovoltaic solar panels through a subsidiary company called SolarCity. To date, electric cars remain the biggest and most profitable product that the company has in the market. According to Tesla’s Chief Executive Officer (CEO) Elon Musk, the vision of the company is to build a strong brand as a technology company and automaker that seeks to offer competitively priced electric cars. In 2013, when the company was marking ten years of operations in the American market, it had already leapfrogged Nissan and General Motors in the sale of electric cars. Reports indicate that Tesla’s Model S had more sales compared to those of BMW 7 and Audi A8 put together (Tansel, 2016). This was a clear indication that Tesla’s business strategies were effective, thus giving it a competitive advantage in the market. The number of sales made over the years makes it obvious that Tesla offers a unique alternative to consumers seeking a different experience.

We will write a custom Tesla Company’s Diversification Strategy specifically for you
for only $14.00 $11,90/page
308 certified writers online
Learn More

Discussion

Tesla has several competitive advantages over the other high-tech companies operating in the American market. Some of the most notable ones are the battery supply chain, its supercharger network, and customer prioritization. Additionally, the technology platforms used by Tesla play a crucial role in giving it a competitive advantage (Lei & Slocum, 2013). Tesla has shown great intent to have the best batteries in the market. Since it started producing the batteries, the company has focused greatly on scaling the level of production, which has in turn helped in improving the efficiency of the products. This has been evidenced by the construction of the Giga factory (Somssich, 2017). Tesla batteries have a design similar to the ones used in consumer electronics because they are lighter and their production costs are low. Tesla has also invested a lot in their charging stations. Compared to their competitors, Tesla comprehends the fact that most of the people that buy electric cars prefer stations that charge faster regardless of their accessibility levels. The company’s supercharger network is unrivaled because they are free and powerful (Blue, 2016). Besides, the lack of any meaningful intent of its competitors to invest in powerful charging stations has played a major role in strengthening its advantage.

The technology platforms used by Tesla have also given it a huge competitive advantage in the market. The company installs state of the art software on its products, an element that places it a tier above its competitors (Kauerhof, 2017). According to psychologists, human beings are easily attracted to the latest version of a product regardless of its price. Tesla has demonstrated that it understands this concept clearly as its car models are designed with the future in mind. The software used by Tesla is always updated with new technologies, thus making most consumers choose their cars because the efficiency levels are always high (Tansel, 2016). Analysts believe that Tesla can make virtual recalls to any of their car models because it has invested in the latest software. The focus of Tesla’s business strategy is a complex coordination model whereby they seek to have unique, quality, and affordable products. This has endeared them a lot to their growing customer base, which has greatly benefited from its strategy to exercise integrity and morality in their service (Blue, 2016). Also, the company has proven to be a first-mover concerning taking huge risks in a bid to keep its consumers over the edge.

Strategic Options

The business environment in the contemporary world is very competitive. Innovators are coming up with new products at an alarming rate, thus creating an urgent need for every business to develop effective strategies to implement their ideas. Tesla has gained a huge reputation for its aggressive and equally risky approach to business since it started its operations. The strategy that has managed to push the company’s brand to the consumers with ease is diversification. Tesla started as an automotive company but managed to expand and introduce more products into the market as a fully-fledged technology company (Kauerhof, 2017). This strategy has made Tesla one of the leading market players in the energy and automobile industries. Many analysts believe that the integration model applied by the company in the manufacturing of electric cars, coupled with the elegance of its products has been its biggest selling point in winning over most of its customers.

The marketing of electric cars is arguably the backbone of Tesla’s diversification strategy. Tesla sought to bring a different brand of electric cars that were faster, smoother, and exceptionally slick compared to those manufactured by its competitors (Birk, 2015). It chose to build on the reputation they had already built in the market to venture into other sectors much to their advantage. The fact that Tesla manufactures its batteries means that the overall production cost of their products is lower, thus increasing their profit margins. Tesla is in a commanding position concerning influencing the future of electric cars. The self-drive option in its latest model is an affirmation that Tesla has an aggressive approach to its strategy (Somssich, 2017). Technological experts argue that success in a highly diverse market that is driven by the latest innovation requires one to be creative on top of having the willingness to try out new ideas. Tesla has excellently demonstrated its ability to do that over the years. Although some critics had questioned the sustainability of the company’s strategic choices, the economic utility that it has generated through its numerous products has proven them wrong.

The automotive industry is highly unpredictable, thus the reason diversification was the best strategic option for Tesla. The company would have acted naively if it had chosen to concentrate on manufacturing electric cars because any little hiccups in the industry would prove to be a hard survival battle for any business. Tesla is already thinking of implementing an idea where car owners can make revenue by offering taxi services. Besides, the same idea is in the course of implementation with the solar panels where homeowners can sell excess power to others or even set up a charging station (Tansel, 2016). Over time, all these ideas play a pivotal role in increasing the company’s competitive advantage and ease of penetrating various global markets. The strength of any brand is crucial in determining the behavior of consumers in any market.

Advantages and disadvantages of Tesla’s diversification strategy

Tesla’s diversification strategy intensified in 2016 when the company’s CEO announced the intention to acquire SolarCity. The main motivation behind the diversification strategy was to achieve its long-term vision of creating a world powered by solar energy. Some of the main advantages that Tesla has leaped from its diversification strategy include the increased ability to hedge its portfolio, capital preservation, and reduced risks on investments (Blue, 2016). Tesla has endeared its self to a global customer base because of its willingness to promote clean energy. The world is currently experiencing adverse climatic conditions due to global warming. The automobile industry is one of the biggest contributors to the volume of greenhouse gases released into the atmosphere. Therefore, the decision by Tesla to invest more in clean energy production has played a pivotal role in strengthening its brand.

Get your
100% original paper on any topic done
in as little as 3 hours
Learn More

The strategy adopted by Tesla has allowed its products to reach a wider market pool, thus giving it a competitive advantage. Analysts believe that any consumer who buys an electric car from Tesla will most likely buy their batteries and solar panels because their efficiency levels are a tier above all the others available in the market (Blue, 2016). This has also contributed a lot to the high number of sales the company has recorded over the last several years. The diversification strategy used by Tesla has also enhanced its marketing prowess. The company has gained a reputation for creating products with sleek designs that require an effective marketing design. For example, the Model 3 had received more than 300,000 orders, even before its production had started. This phenomenon was necessitated by the excellent marketing done for the product coupled with the efficiency of the preceding ones (Birk, 2015).

The major disadvantage that Tesla has experienced due to its diversification strategy has been having below-average returns. Although this has not been necessitated by a reduction in the quality of their products, many analysts believe that past experiences of businesses that sought to diversify often reduce the appetite of investors to buy a company’s stock. For example, the stock value of Tesla dropped significantly in 2013, as soon as the news of their decision to take over SolarCity was announced (Kauerhof, 2017). Apart from a reduction in the stock value, Tesla has also experienced below-average returns in the recent past due to other factors such as transaction fees involved in the takeover. Diversification is one of the most effective strategies used in investment (Birk, 2015). However, a business needs to avoid having negative experiences by ensuring that they manage their portfolios.

Conclusion

Tesla is a good example of the way any business can use its competitive advantage to adopt the concept of diversification in its investments. One of the main elements that have put Tesla a step ahead of its competitors is the ability to have unique, quality, and sleek products. According to investment experts, differentiation can be highly effective in pushing a company’s brand beyond their projections because consumers always have a big appetite for quality goods and services. Over the years, Tesla has built a business and marketing model that will remain unrivaled for a long time.

References

Birk, D. (2015). Evaluation of the marketing strategy of Tesla motors Inc. New York, NY: GRIN Publishing.

Blue, J. (2016). Strategic analysis: Tesla motors and “Powerwall”. Web.

Kauerhof, A. (2017). Tesla motors Inc. market entry strategy in Germany: A corporate strategy analysis. New York, NY: GRIN Verlag.

Lei, D., & Slocum, J.W. (2013). Demystifying your business strategy. New York, NY: Routledge.

We will write a custom
Tesla Company’s Diversification Strategy
specifically for you!
Get your first paper with 15% OFF
Learn More

Somssich, E. (2017). Definition and market analysis of the Tesla motors model. New York, NY: GRIN Verlag.

Tansel, A.K. (2016). Marketing report on “Tesla Motors”: Marketing audit, segmentation & targeting analysis and analysis of product/brand strategy and positioning. New York, NY: GRIN Publishing.

Check the price of your paper